Ofgem cuts typical domestic consumption values used in price caps

Ofgem reduced the typical domestic consumption values (TDCVs) it uses to calculate the typical bill in the energy price cap, as of July. The regulator now says the typical household uses 9,500kWh of gas, down 17 per cent from its previous 11,500kWh level, and 2,500kWh of electricity, down 7 per cent from 2,700kWh¹.

The change reflects a longer decline in household energy consumption, which has fallen by more than a quarter since 2010¹. The Resolution Foundation, which reported the figures, said the adjustment was the first to consider evidence from after the gas crisis¹. It said 2022 and 2023 account for over a third (36 per cent) of the fall in electricity consumption and almost two-fifths (39 per cent) of the fall in gas consumption since 2010, equivalent to saving £228 a year on average at today's prices¹.

The main driver of lower use in 2022 was the rising cost of energy. The typical household energy bill in 2022 was 62 per cent higher than in 2021, with electricity unit prices up 48 per cent and gas unit prices up 110 per cent¹. The Resolution Foundation said the rise would have been substantially higher had the Government not intervened by capping bills with the Energy Price Guarantee from October 2022¹.

The TDCVs are used to illustrate what a typical household pays under the cap, not to set the cap itself. The Resolution Foundation's analysis of neighbourhood data found that the vast majority of neighbourhoods (79 per cent) reduced gas use by at least 10 per cent and electricity use by at least 5 per cent in 2022¹. Even in London, which economised the least, gas use fell by 13 per cent and electricity by 7 per cent¹.

Source: Resolution Foundation¹

Why it matters for households

The TDCVs feed into the quoted typical bill under the energy price cap, so a lower assumed consumption figure changes the headline number used to describe what a household on default tariffs pays, even where unit rates are unchanged. The cap limits unit rates and standing charges rather than total bills, so what any household actually pays depends on how much energy it uses.

The Resolution Foundation's analysis suggests the reduction reflects real falls in use rather than a change in how bills are calculated. It found that income was the largest factor predicting the size of gas use reductions, closely followed by temperature and poor energy efficiency, with an area at the 10th percentile of income or local temperatures cutting gas 1.8 percentage points more than one at the 90th percentile¹. It also found that the wealthiest places cut electricity use by almost two-thirds more than the lowest income areas, while the richest turned the heating off 15 per cent less¹.

By 2024, prices were almost one-third lower than their peak in real terms, but consumption had not substantially recovered: only one-sixth of the cuts in gas consumption made by the poorest places had been reversed¹. The gap in gas use between the poorest tenth and richest tenth of areas was still 2,500kWh, equivalent to more than a quarter of typical consumption of 9,500kWh¹.

What happens next

The Resolution Foundation said its analysis supports targeting any additional support for energy costs by income, and that the Government's recent VAT cut on electricity will provide some help with bills¹. It said policy makers should be particularly attentive to further rises in already high gas prices given the risks of underconsumption in poorer places¹. Ofgem's decision letter on the 2023 TDCV review is dated May 2023¹.